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The February’s manufacturing ISM slipped to 56.5, versus a 58.4 a month prior. Disappointing the latest Bloomberg consensus forecast of 58.0. Any level over 50 signifies expansion in the sector. I continue to believe that as inventory restocking begins to slow the ISM manufacturing index will suffer as 2010 progresses. That is without a new source of demand for manufactured goods, which does not appear to be on the short-term horizon.

Looking at the ISM’s components, prices paid fell to 67.0 from 70.0, the employment index climbed to 56.1 from 53.3, and the new orders index declined to 59.5 from 65.9. A jump in the employment index could bode well for this Friday’s employment report, which could be battered by weather related effects.

This week I am going to keep a close eye on several housing reports, which include January’s new (Wed) and existing (Fri) home sales along with December’s Case Shiller HPI (Tue)–December is the first month after what would have been the expiration of the first time home buyer tax credit. December’s home prices likely came under continued pressure, while January’s home sales data should show at least a modest bounce after their sharp declines in December stemming from the would-be expiration of the tax credit.

I will also be watching a slew of manufacturing releases including three regional Fed surveys–together these surveys can provide some insight on the month’s ISM–and the durable goods orders report (Thu). I anticipate that all should be positive excluding the Richmond Fed survey.

This week’s biggest news will likely culminate in a flurry of Fed speeches culminating with Chairman Bernanke’s semi-annual monetary policy report to Congress (Wed). But, given his recent House testimony, coupled with the FOMC minutes he may not have many surprises left to deliver in this week’s testimony. Nevertheless, markets will be keeping a very close eye on what he has to say, and any comments related to the timing of tightening will likely impact the market. There are also several other key important Fed speeches this week that could drive some headlines.

January’s Manufacturing ISM Index rose to 58.4, now coming in above 50 for six consecutive months. The this reading was much better than the Bloomberg consensus forecast of 55.5 with individual estimates from 53.5 to 58.0.

Looking at the ISM’s sub-indices; prices paid rose to 70.0 in January from 61.5 in December; the employment index climbed to 53.3 from 50.2; & the new orders index rose to 65.9 compared to 64.8 a month prior.

Markets are trading higher on the news, especially material companies, as manufacturing surveys around the world showed strong than expected gains.

The manufacturing ISM rose to 55.9 from 53.6 in November. Looking at the components the Prices Paid Index rose to 61.5 in December from 55.0, while New Orders jumped to 65.5 from 60.3 in November. But, the big story may be in the Employment Index, which climbed to 52.0 in December from 50.8. This result could bode well for payrolls on Friday, especially if confirmed by the non-manufacturing ISM’s employment index and the ADP employment report.

It is a good thing investors will have the entire weekend to recover from their New Year’s celebrations, because 2010 is starting with a bang, at least in terms of economic data. Undoubtedly, the week’s most critical release will be Friday’s employment report, where excitement is building that payrolls could show their first monthly advance since gaining 120K jobs in December 2007. What a difference a year makes, considering it was announced last year that payrolls fell -524K December. Leading up to this release data-centric investors will analyzing both the ISM manufacturing and non-manufacturing’s employment indices along with the ADP employment report for clues toward Friday’s release.

Other significant indicators this week include manufacturing ISM on Monday, pending home sales on Tuesday, non-manufacturing ISM and FOMC minute on Wednesday, and jobless claims and chain store sales on Thursday. The manufacturing ISM should remain above 50 for the fifth consecutive month; however, weakness in some of the Fed’s regional manufacturing survey could place some negative pressure on the index leading to only a marginal gain from November’s release. The FOMC minutes should prove to be a non-market moving event simply providing further details behind the Fed’s eventual exit strategy and the termination of its unprecedented accommodative policies. Pending home sales should help provide some insight behind the health of home sales after the would-be expiration of the first time home buyer tax credit on November 30th. Finally, chain store sales on Thursday will provide one of the first detailed looks at the holiday shopping season.

Fed speakers will be relatively active next week with Chairman Bernanke, Vice Chairman Kohn, and Atlanta Fed President Lockhart opening the week up on Sunday participating in a panel discussion for the American Economic Association in Atlanta. On the earnings front, Bed Bath & Beyond (BBBY), Constellation Brands (STZ), Family Dollar Stores (FDO), and Monsanto (MON) are all expected to report this week. Also, look for headlines from the 2010 Consumer Electronics Show that starts next week and could attract over 100K visitors.

Here is the rest of this week’s US calendar:

Monday, Jan. 4

10:00 a.m. EST: December’s ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The Manufacturing ISM Index should remain above 50 for the fifth consecutive month, but experience only a marginal gain from November’s reading of 53.6. Weakness in some of the Fed’s regional surveys could place downward pressure on this month’s release; however, some of this pressure should be alleviated by the fact that in November the ISM New Orders index came in at a relatively robust 60.3. It will be important to continue monitoring the ISM’s new orders, employment, and prices paid index for implications toward the future and other sectors of the economy. The current Bloomberg consensus forecast is for an ISM reading in December of 54.8, compared to 53.6 in November.

10:00 a.m. EST: November’s Construction Spending (Risk: Neutral, Market Reaction: Moderate): Construction spending will likely remain weak in November, and downward revisions to past data are likely to continue. Construction spending was unchanged in October, but after revisions declined by -1.6% in September. The current Bloomberg consensus forecast is for a decline in construction spending of -0.5%.

10:15 a.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on government crisis response to the American Economic Association.

Tuesday, Jan. 5

December’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Attractive dealer year-end incentives during December will likely help boost motor vehicle sales during the month. The current Bloomberg consensus forecast for domestic vehicle sales is an annual pace of 8.4 million units, compared to 8.2 million a month prior.

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number rose +0.4% compared to an increment of +0.6% a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales rose 1.9% last week on a yearly basis.

10:00 a.m. EST: November’s Factory Orders (Risk: Neutral, Market Reaction: Marginal): After rising 0.6% in October, factory orders should continue to rise in November on the back of relatively strong durable goods orders and refinery orders stemming from higher energy prices. The current Bloomberg consensus forecast is for a rise in factory orders of 0.4%.

10:00 a.m. EST: November’s Pending Home Sales (Risk: Downside, Market Reaction: Significant): This release should help quantify the impact of what would have been the expiration of the first time homebuyer tax credit on November 30th. It is expected that a wave of buyers rushed to close their purchases before the end of the month to qualify for the first time home buyer tax credit. Mortgage applications have recently been on the decline to supporting this theory. It is expected that an extension/expansion of the program will eventually bring a new group of home purchasers into the market.

Wednesday, Jan. 6

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): The MBA was closed last week so this week’s release will include two weeks of data. This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Applications fell 10.7% two weeks ago after rising 0.3% a week prior. Refinance applications fell 10.1%, while purchase applications dropped -11.6%. A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages. However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

7:30 a.m. EST: December’s Challenger Job Cut Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs. Meaning layoffs announced in November may not actually take place until December, or even take place slowly over an extended period of time. I anticipate this report will show continued improvements as companies have mostly completed large scale layoffs.

10:00 a.m. EST: December’s ISM Non-Manufacturing (Risk: Neutral, Market Reaction: Significant): After unexpectedly falling below 50 in November, investors will have the opportunity to decide whether this is the beginning of a new trend or a one off event. Investors will also be paying close attention to the non-manufacturing ISM’s employment index, which could have some sway over the whisper number ahead of Friday’s employment report. The current Bloomberg consensus forecast is for a reading of 50.4 compared to 48.7 a month prior.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed a decline of -1.5 million barrels versus a drop of -4.9 million barrels a week prior.

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Significant): The FOMC minutes should provide additional details behind the Fed’s eventual exit strategy and the termination of its unprecedented monetary easing. However, I think it is still too early in the year to anticipate anything tremendously market moving from this report.

Thursday, Jan. 7

Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): The market will be looking closely at this report as it is the first detailed report covering the holiday shopping season. Early reports have indicated that the holiday shopping season may have been more robust than some had anticipated, but considering last year’s base this may not be as positive as it sounds. Nevertheless, higher is better; I anticipate the strongest results will come from discount retailers as consumers grow increasingly budget conscious.

6:00 a.m. EST: Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): Given the added significance of this week’s employment report this typically overlooked employment index could garner some extra attention. This survey conducted by Monster Worldwide Inc. measures online job demand. According to the company, “The trend in online job availability has been largely flat for most of the year and remained so in November,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “While job losses have continued to ease, businesses remain cautious about adding to their payrolls in light of sustained economic uncertainty.”

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 22K last week to 432K, after falling 28K a week prior. It is important to note that the Christmas holiday, and the seasonal adjustment around it, could be skewing last week’s data. The four week moving average improved to 460,250 from 465,250. Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.

1:00 p.m. EST: Tom Hoenig, the Kansas City Federal Reserve Bank President, will give a speech on the economic outlook.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Current Week’s Release (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet shrank marginally last week to US$2.219trn from US$2.221trn, due to marginal reduction in the Fed’s agency MBS. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 8

8:30 a.m. EST: December’s Employment Situation (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus is for a change in payrolls of 0, versus a decline of -11K in November. Individual forecasts range from -50K to +40K. A steady reduction in the number of initial unemployment claims bodes well for improving payroll data, but I think we could see an eventual reversal of seasonal hires as the holiday shopping season comes to a close in the months ahead. I will be paying close attention to the index’s temporary employment index, which recently has been improving, and is a good forward looking indicator toward payrolls. I continue to believe, despite a potentially positive reading in December, the employment situation will get worse before it stabilizes and begins to improve, albeit gradually, in 2Q10. The current Bloomberg consensus forecast for the unemployment rate is 10.0%, unchanged from November.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers. It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales. It is important to note that this data is on a two month lag.

3:00 p.m. EST: November’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): I anticipate that little has changed in this sector, and we should continue to see a decline in consumer credit in the face of consumers less willing to borrow and banks less willing to lend. November would be the tenth consecutive month consumer credit has declined. In October consumer credit declined by -$3.5 billion, after declining by a revised -$8.9 billion in September. The current Bloomberg consensus forecast is for a decline of consumer credit outstanding of -$5.0 billion for November.

The ISM manufacturing index rose in October to 55.7 from 52.6 in September, which was above expectations. This was the highest reading for the index since April. The prices paid index climbed to 65.0 in October from 63.5 a month prior. The employment index jumped to 53.1 during the month from 46.2 in September. The new orders index fell slightly to 58.5 in from 60.8. The rise in the employment index was quite drastic and unexpected, and if confirmed by the non-manufacturing ISM and ADP employment report we could see some upward revisions to the consensus survey for Friday’s employment report. Interestingly,there have only been three occasions where an ISM employment report above 50 coincided with a decline in payrolls, however, I feel pretty safe in saying this month will be the fourth occurrence. Nevertheless, any job growth, especially if sustainable, would be a big positive for the US economy.

September’s pending home sales rose 6.1%, which is the 8th consecutive month of gains for the index. The likely driver behind this jump is home buyers trying to sign contracts and close deals in time to take advantage of the first time home buyer tax credit. On a year over year basis pending home sales are up 21.2%

With the first week of November comes a wave of important economic data—plus a few key earnings announcements—important macro releases include October’s employment report, an FOMC announcement, and several other indicators that will help gauge the health of the consumer and overall economy. Also important to note is that the ECB, Bank of England, and Bank of Australia are all scheduled to make their own policy announcements next week, which could have some carry over into US markets. On the earnings front, the market will be hearing from companies that include Cisco, Kraft Foods, Viacom, and Prudential.

Nevertheless, this week’s spotlight will be on Friday’s employment report, which is expected to show the unemployment rate moving from 9.8% to 9.9% with a decline in payrolls of -175K. During the week it will be important for investors to watch the employment components of both the manufacturing and non-manufacturing ISM along with the ADP employment report for any clues towards Friday’s payroll numbers. Any major swings in these indicators could shift expectations for Friday’s number and thus have a big impact on the day’s trading.

This Wednesday’s FOMC statement will undoubtedly receive immense scrutiny from investors looking for hints toward the timing of an eventual tightening cycle, however, as economic conditions have remained fairly static since the last meeting major changes are unlikely. Other notable indicators include Monday’s motor vehicle sales and manufacturing ISM, Wednesday’s non-manufacturing ISM and Treasury refunding announcement, Thursday’s chain store sales and productivity, and Friday’s consumer credit report.

Here is the rest of this week’s US calendar:

Monday, Nov. 2

October’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Car companies once again introduced strong incentives for the month to bring buyers back into the market after the expiration of the government’s ‘Cash for Clunkers’ program, but sales should remain relatively subdued. The current Bloomberg consensus forecast is for domestic vehicle sales at an annualized pace of 7.3 million units compared to 6.7 million units in September. August sales reached an annualized pace of 10 million units thanks to the ‘Cash for Clunkers’ program.

10:00 a.m. EST: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): October’s ISM index should remain above 50 for the third consecutive month, despite likely remaining relatively unchanged from September’s release of 52.6. The current Bloomberg consensus forecast is for a release of 53.0. Investors will not only be paying close attention to the new orders index—previously 60.8—, but also the employment index—previously 46.2— for clues toward Friday’s employment report. An ISM above 50 bodes well for the overall economy, and should place some upward momentum on industrial production.

10:00 a.m. EST: September Construction Spending (Risk: Neutral, Market Reaction: Marginal): According to the Bloomberg consensus survey construction spending is expected to fall -0.2% in September versus an increment of 0.8%in August. Strong housing start data will likely place some momentum on residential construction while high commercial vacancy rates and lower government spending should more than offset these gains through government and public construction spending.

10:00 a.m. EST: September’s Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales rose 6.4% in August. However, pending home sales could start facing some pressure over the coming months as the first time home buyer tax credit is presently set to expire on November 30th.

10:30 a.m. EST: Daniel Tarullo, Federal Reserve Governor, is participating on a panel to discuss executive compensation at a University of Maryland event.

10:00 p.m. EST: US Treasury 4Q09 Borrowing Requirements (Risk: Neutral, Market Reaction: Marginal): The Treasury will release its borrowing estimates for the next two quarters. Further details will be released in Wednesday’s refunding announcement.

Tuesday, Nov. 3

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a weekly increment of 0.1% in store sales compared to a gain of 0.2% a week prior.

8:55 a.m. EST: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales were rose 0.7% last week on a year over year basis.

10:00 a.m. EST: Factory Orders (Risk: Neutral, Market Reaction: Marginal): After falling -0.8% in August—on the back of weak durable goods—factory orders are expected to show at least a modest gain. The current Bloomberg consensus forecast is for an increment in September of 1.0%. The advanced durable goods orders report indicated a 1.0% increment in September, which should place some upward momentum on September’s factory orders.

Wednesday, Nov. 4

7:00 a.m. EST: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week’s data declined 12.3% after falling 13.7% a week prior possibly due to the upcoming expiration of the first time home buyer tax credit. The refinance index fell 16.2%, while the purchase index fell 5.2%.

7:30 a.m. EST: Challenger Job-Cut Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs. Meaning layoffs announced in October may not actually take place until September, or even take place slowly over an extended period of time.

8:15 a.m. EST: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number. Any significant swings in this release combined with unexpected shifts in the manufacturing and non-manufacturing ISM employment indices could shift the consensus forecast for Friday’s employment release.

9:00 a.m. EST: Treasury Refunding Announcement (Risk: Neutral, Market Reaction: Moderate): According to the Securities Industry and Financial Markets Association the Treasury will likely announce that it will issue $444.5 billion of marketable debt during the fourth quarter. This would equate to a 13% jump from last quarter, but remain below the levels of fourth quarter 2008 as they were beginning to fund several new programs. Treasury yields have the potential to creep higher over the coming months as additional supply hits the market.

10:00 a.m. EST: October’s ISM Non-Manufacturing Index (Risk: Neutral, Market Reaction: Significant): Like the manufacturing ISM, non-manufacturing ISM, should remain above 50, but be relatively unchanged on a month over month basis. The current Bloomberg consensus forecast is for a reading of 51.9, versus 50.9 in September. Again, investors will be paying close attention to the employment index for clues towards Friday’s employment report. Also, it is important to look for any continued improvements in the new orders index that would confirm a continued upward trend for the index.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed a rise of 0.8 million barrels versus an increment of 1.3 million barrels a week prior.

2:15 p.m. EST: FOMC Announcement (Risk: Neutral, Market Reaction: Significant): Investors will be analyzing the FOMC statement very closely for any indication of when they intend to begin tightening monetary policy or how they intend to withdraw quantitative easing. Nevertheless, it is unlikely that November’s statement will express any significant changes versus the prior month, as economic conditions have remained somewhat static. However, you can be sure the statement will be analyzed under a microscope for even the slightest hint of a shift in policy.

Thursday, Nov. 5

October Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): US chain store sales were up 0.1% on a yearly basis in September, and could experience some modest gains in October. Relatively strong performance in the ICSC-Goldman Sachs weekly chain store sales index should bode well for retailers, but numerous headwinds still exist, including a weak labor market and wavering consumer confidence reducing spending.

October’s Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand. According to last month’s national survey, “Despite recent improvements in economic sentiment, U.S. employers continue to exhibit caution when it comes to hiring,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide.“On the upside, demand for workers is firming in the blue-collar segment, with welcome signs of revived activity in construction and manufacturing.”

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 1K to 530K, after falling 11K a week prior. Despite second derivative improvements these numbers still indicate further deterioration to upcoming payroll numbers, and the unemployment rate, which is very likely to exceed 10% in the coming months. The current Bloomberg consensus forecast is expecting a pullback in this week’s initial claims data to 523K from 530K—these numbers are still very high.

8:30 a.m. EST: Third Quarter 2009 Productivity and Costs (Risk: Neutral, Market Reaction: Significant): Productivity gains continue to surprise to the upside as employers are able to gain more output from fewer employees. Never before in history has productivity experienced such strong gains during a protracted economic downturn. With that said the current Bloomberg consensus forecast is for third quarter productivity growth of 6.3%, compared to 6.6% during the second quarter. A 6.3% rise in 3Q09 nonfarm business gross value add coupled with a what is a forecasted decline in nonfarm private sector hours worked helps support the case for strong productivity growth during the quarter. Strong gains in productivity will likely cause employers to delay employers from hiring as they are now receiving more from less.

9:00 a.m. EST: RBC CASH index (Risk: Neutral, Market Reaction: Significant): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances. This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet again declined last week to US$2.144trn from US$2.183trn a week prior. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Nov. 6

8:30 a.m. EST: Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus forecast is for a decline in payrolls of -175, versus a decline of -263K in September, and an unemployment rate of 9.9% compared to 9.8% a month earlier. October’s anticipated second derivative improvement in payrolls is partially due to expected improvements in September’s education components after strong losses last month. The unemployment rate will likely continue to rise—the consensus forecast range for October’s unemployment rate is 9.9% to 10.1%—and eventually peak above 10% next year.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers. It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales. It is important to note that this data is on a two month lag.

3:00 p.m. EST: September’s Consumer Credit Outstanding (Risk: Neutral, Market Reaction: Moderate): After falling $12.0 billion in August consumer credit outstanding likely declined again during September with declines in both revolving and non-revolving credit. The current Bloomberg consensus forecast is for a decline of US$10.0 billion. This would be the eighth consecutive month of declines for consumer credit outstanding. It is important to note that the monthly changes in this index have been quite volatile recently making it harder to calculate accurate forecast.

There’s no doubt this week’s most important release will be Friday’s employment report, which is expected to show a decline in payrolls of -170K with an unemployment rate of 9.8%. This week could prove critical as markets try to regain some traction after several negative surprises last week, including lower than anticipated existing home sales and durable goods orders. However, looking at the docket this week (and possibly the months ahead) may hold slightly more downside risk than upside as the effects of the Cash for Clunkers program continues to fade, and the first time home buyer credit ticks closer to expiration come the end of November. Other heavy hitters to watch this week include Tuesday’s consumer confidence report, Wednesday’s Chicago PMI release, and jobless claims, ISM, and personal income and outlays on Thursday.

Ending on a more positive note, the US is expected to return to positive GDP growth starting in 3Q09 on the back of improvements in the inventory cycle stemming from a slower rate of destocking. However, the magnitude and longevity of this return to growth will be strongly dependent on consumer demand returning to the market.

Here is the rest of this week’s US calendar:

Monday September 28th:

8:30AM: Chicago Fed National Activity Index for July (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding six months and is expected to improve again in August from its reading of -1.7 in July.

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a weekly decline of -2.0% in store sales compared to an increase of +0.0% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales were down -2.6% last week on a year over year basis.

9:00AM: S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The Case Shiller HPI has shown some signs of life rising 1.4% in June with only Las Vegas and Detroit experiencing monthly declines. But, on a year over year basis both the Case-Shiller 10 and 20 city composite indices are still down over 15%. Nevertheless, the index will likely show a modest monthly improvement in July on the back of relatively strong housing activity.

9:50AM: Richard Fisher, Dallas Federal Reserve Bank President, gives a speech on the state of the economy.

10:00AM: Consumer Confidence (Risk: Negative, Market Reaction: Significant): Recent advances in other consumer confidence indicators, including Reuters/UMich Consumer Sentiment Index, should help add some upward momentum to the Conference Board’s September Consumer Confidence number. A weak labor market is still a big concern for consumers, however, indications that the economy may be improving will likely not go unnoticed. The current Bloomberg consensus forecast is for an increase to 57.0 from August’s number of 54.1.

10:00AM: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report, “[August’s] increase represents the eighth consecutive improvement in Global Investor Confidence, and places the risk appetite of institutional investors firmly in the range that is associated with accumulation of risk exposures,” They went on to say. “At the same time, the rate of increase in the Index has moderated relative to some months ago, suggesting that institutions are being somewhat selective in their allocations.”

7:00PM: Charles Plosser, Philadelphia Federal Reserve Bank President, is speaking on Fed’s role in the economy at the Lehigh Valley Economic Outlook

Wednesday September 30th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week’s data showed an increment of 12.8% on higher refinancing activity stemming from mortgages rates slipping below 5%. The refinance index rose 17.4%, while the purchase index rising 5.6%.Refinances made up 63.8% of all applications last week.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number. Last month, however, the ADP reported indicated job losses of -298K, while payrolls declined by only -216K.

8:30AM: GDP (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey,the BEA’s final estimate of 2Q09 GDP is likely to come in at -1.2%, compared to the preliminary estimate of -1.0%. The culprits behind the anticipated slippage are faster inventory liquidation and weaker net exports. GDP is widely expected to turn positive in 3Q09.

9:45AM: Chicago PMI (Risk: Negative, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index. Adverse effects from strong seasonal adjustment factors could cause this index to surprise on the downside. The current Bloomberg consensus forecast is for an increase to 52.0 in September versus 50.0 in August. It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices. The new orders index broke above 50 in August for the first time in 11 months.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed a rise of 2.8mn barrels versus a decline of -4.7mn barrels a week prior.

Thursday October 1st:

Motor Vehicle Sales (Risk: Negative, Market Reaction: Moderate): Auto sales will likely face a sharp pullback in September, no longer benefitting from the US government’s Cash for Clunkers program. The current Bloomberg consensus is forecasting 8.0mn domestic sales for September, versus a 10.1mn annual pace in August. Despite the precipitous drop, the y/y decline should be less now than it was prior to the Cash for Clunkers program, which is somewhat positive.

7:30AM: Challenger Job-Cut Report (Risk: Neutral, Market Reaction: Moderate): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs. Meaning layoffs could be announced in September, but not take place until October, or may even take place slowly over an extended period of time.

8:30AM: Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): The temporaneous effects of the Cash for Clunkers program have likely lead to a significant increment in consumer spending for August, with the Bloomberg consensus forecast anticipating a 1.1% monthly increase, higher energy prices may have also had a marginal impact. Personal income will likely turn slightly positive for the month on the back of higher average wages; the current Bloomberg consensus forecast is for a monthly increment of 0.1% versus no change last month. The core PCE is expected to rise 0.1%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 21K to 530K. Initial claims should continue to demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time. In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward. The current Bloomberg consensus for this week’s initial claims release is 537K. The anticipated increment for claims may still be due to seasonal adjustment effects stemming from the later than usual Labor Day Holiday.

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): In August the ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the breakeven point of 50 since January 2008. Looking to September, the current Bloomberg consensus forecast is for a reading of 53.5, which I personally believe may be slightly optimistic. Nevertheless, the new orders index did jump last month to 64.9 from 55.3. With that in mind it will be very important to pay close attention to September’s new orders and employment index, which could help set the tone for the overall report.

10:00AM: Construction Spending (Risk: Negative, Market Reaction: Moderate): According to the Bloomberg consensus survey construction spending is expected to fall -0.1% in August versus a decline of -0.2% in July. Non-residential construction should continue placing the strongest downward pressure on the overall index, while residential construction spending also has the potential to move into negative territory after gaining 2.3% in July and 0.4% in June on a strengthening housing market.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales rose 3.2% in June, realizing its sixth consecutive monthly gain. However, pending home sales could start facing some pressure over the coming months as the first time home buyer tax credit is presently set to expire on November 30th.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet rose again last week to US$2.141trn from US$2.125trn a week prior. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus forecast is for a decline in payrolls of -170K for September, compared to a decline of -216K in August. However, it is important to keep in mind that a later than usual Labor Day could lead to some discrepancies in this month’s data. Nevertheless, we should see an improvement from last month’s declines. According to the Bloomberg consensus forecast the unemployment rate is expected to rise to 9.8% from 9.7%.

10:00AM: Factory Orders (Risk: Negative, Market Reaction: Moderate): The current Bloomberg consensus forecast is for an increment in factory orders of 1.0% in August, versus +1.3% in July. However, unexpected weakness in last week’s durable goods release on Friday may cause some revisions to this number.

The ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the break even point of 50 since January 2008. Improvements in manufacturing will likely have positive implications for 3Q09 Real GDP growth. The new orders index increased to 64.9 from 55.3 a month prior. This index indicates that increments in the ISM should continue. The prices paid index rose to 65.0 from 55.0 a month prior. Despite the increment in the ISM the employment index remains below 50, moving to 46.4 from 45.6 a month prior. Norbert J. Ore, CPSM, C.P.M., chair of the ISM said in the report, “The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July. While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9 percent is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9 percent, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand.”

Construction spending fell by 0.2% in August. An increment in residential; construction spending was offset by a declines in non-residential and public spending.

Pending home sales rose 3.2% in June, realizing the index’s sixth consecutive monthly gain. This is continued evidence the housing sector has bottomed, and is in the midst of a gradual recovery. But, rising foreclosures and delinquencies on all types of mortgages stemming from weakness in the labor market will prevent any recovery in housing from reaching its full potential. Lawrence Yun, NAR chief economist, said, “The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit.”

Ford will be the first auto company reporting sales later today at 12:00PM, be sure to keep an eye out for this data.

July’s non-manufacturing ISM came in at 46.4, compared to last month’s reading of 47.0 in June, and a market consensus of 48.2. July’s employment index moved to 41.5 from 43.4. The prices paid index moved to 41.3 from 53.7. Weakness in the employment index coupled with a weaker than anticipated ADP report could place negative pressure on Friday’s critical payroll release. The market had an immediate adverse reaction to the news. Seven of the 18 industries tracked by the index report gains in July, led by real estate, entertainment, and agriculture.

Non-Manufacturing ISM Breakdown:

Jul-09

Jun-09

May-09

Apr-09

Mar-09

Feb-09

Jan-09

NMI/PMI

46.4

47.0

44.0

43.7

40.8

41.6

42.9

Bus Activity

46.1

49.8

42.4

45.2

44.1

40.2

44.2

New Orders

48.1

48.6

44.4

47.0

38.8

40.7

41.6

Backlog Orders

42.0

46.0

40.0

44.0

41.0

36.5

37.5

New Export Orders

47.5

54.5

47.0

48.5

39.0

40.0

39.0

Inventory Sent

62.5

67.0

62.5

62.5

60.0

66.5

62.5

Imports

45.0

47.0

46.0

48.5

37.0

39.0

40.5

Prices Index

41.3

53.7

46.9

40.0

39.1

48.1

42.5

Employment

41.5

43.4

39.0

37.0

32.3

37.3

34.4

Supplier Deliveries

50.0

46.0

50.0

45.5

48.0

48.0

51.5

Additionally, July factory orders were also released at 10:00AM and they rose 0.4%, compared to a Bloomberg consensus of -0.8%. Non-durable goods orders rose 2.7% in June.

Contact Me:

Michael.McDonough@fiateconomics.com
Michael is an economist/strategist who has worked from Wall Street to Hong Kong primarily focusing on the U.S. and emerging markets. He has also written several columns. More

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